Report By Members Of The Senate

Principal Activities

During the year the principal continuing activities of the University and its subsidiaries (the Group) consisted of higher education, research, consultancy and other commercial operations supporting University activities.

There were no significant changes in the nature of the activities of the Group during the financial year.

Review of Operations

The Group reported an operating surplus before tax of $33.5 million (2011: $26.1 million) and an operating surplus after tax of $33 million (2011: $3 million) for the year. The University reported an operating surplus before tax of $85.7 million (2011: $39.9 million) and an operating surplus after tax of $85.2 million (2011: $39.7 million) for the year.

Although the Group and University results show a significant increase from the previous year, these increases are further explained by the following:

1. Group – A significant tax related event ($22.9 million) in 2011 in one of the University’s subsidiaries, Murdoch Retirement Services Pty Ltd (MRS) which operates the St Ives Retirement Village. The event originated from two University subsidiaries successfully applying for income tax exemption from the Australian Taxation Office as charitable institutions which resulted in a cash benefit of $7.3 million and $30.2 million write down of deferred tax asset in MRS.
2. University – Donations of $49 million received by the University from MRS which is eliminated on consolidation of the Group result. The donations consist of a cash donation of $34 million and a non-cash loan settlement of $15 million in 2012.

The Group reported revenue of $329 million for 2012 ($308.9 million in 2011), an increase of seven per cent over the prior year.

The revenue increase is a combination of:

• Higher Australian Government Financial Assistance ($19.7 million or 12 per cent);
• A decrease in State and Local Government grants received ($3.5 million or 50 per cent);
• Growth in fees and charges ($13.9 million or 23 per cent) largely associated with international and Open Universities Australia student fees;
• An increase in investment revenue and income ($3.2 million or 36 per cent).  However, once investment losses are included, the net increase in investment returns is $4.7 million or 72 per cent, largely the result of an increase in investment pool and the improved performance on investment market;
• A decrease in consultancy and contract research income ($3.1 million or 14 per cent); and
• A decrease in the fair value adjustment on investment property ($5 million or 90 per cent), largely due to an absence of new units being available for sale in 2012 from the St Ives Retirement Village.

The Group reported expenses (including income tax) of $295.9 million for 2012, a decrease of $9.9 million or three per cent over 2011.

Employee related costs increased $9.9 million or six per cent, from $160.3 million in 2011 to $170.2 million in 2012. This increase is due primarily to salary increases and the automatic progression to higher paid levels of staff on Collective Workplace Agreements.

Non employee related costs decreased by $21.2 million, or 16 per cent. Excluding the one-off tax related item in MRS as mentioned in the “Review of Operations”, non employee related costs increased by $1.6 million or two per cent. This is largely due to higher repairs and maintenance costs ($1.8 million or 23 per cent), higher non-research consulting fees ($2.2 million or 15 per cent) and higher scholarship expenses ($1.9 million or 14 per cent). These increases are partially offset by the decreased costs associated with lower fair value movement in resident loans ($4.4 million or 57 per cent).

Depreciation has increased by $1.3 million or 10 per cent as a result of new asset acquisitions, including the commissioning of new buildings.

Unqualified Audit Opinion from the Office of the Auditor General

The University has received an unqualified audit opinion from the Office of the Auditor General in relation to its financial statements for the year ended 31 December 2012.

Current Assets vs Current Liabilities

The consolidated Statement of Financial Position reflects current assets of $142 million and current liabilities of $231.9 million.

This position is distorted by the resident loans relating to the St Ives Retirement Village of $151.8 million, which are classified as current liabilities. Under Australian Accounting Standards and under our policy as per note 1 (s) of the financial statements, the resident loans are required to be recognised as current liabilities, as residents have control over when they exit the village, not the consolidated group. As a result, the consolidated group does not have an unconditional right to defer settlement.

The classification of the resident loans as current liabilities operates under the assumption that the consolidated group could be required to repay the entire liability at once. In practice however, this is unlikely to occur. Additionally, it is estimated that all payments required would be funded by the cash received from incoming new residents. This has been the situation since the retirement village commenced operations.

If the resident loans were excluded from current liabilities, the current liabilities would be $80.1 million.

Significant Changes in State of Affairs

In the opinion of the Members of the Senate, there were no significant changes in the state of affairs of the Group during the financial year under review.

Matters Subsequent to the End of the Financial Year

There has not arisen in the period between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect significantly the operations or results of the Group.

Likely Developments

The Group will continue to pursue its primary activities of higher education and research. It will further continue to identify commercial activities that provide opportunities for the Group to expand its primary activities, to further develop its endowment funds to strengthen the long term financial security of the Group and expand the educational and research activities.

The higher education sector is facing ongoing challenges as a result of both changing market conditions and Commonwealth Government policy. The Group continues to develop strategies and initiatives to operate successfully in this environment. This is likely to see ongoing change both within the sector and the Group.

Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group.

Environmental Regulations

The Group’s operations are subject to various environmental regulations under both Commonwealth and State legislation, which sets the minimum requirement the Group entity must meet.

The University has an Environmental Sustainability Advisory Committee, which considers environmental issues on the University’s campuses.

The University also has an Occupational Safety and Health Committee which considers regulatory and other obligations in relation to health and safety.

Insurance of Officers

During the financial year, the Group has paid insurance premiums of $33,640 (2011: $32,028) in respect of directors’ and officers’ liability, for current and former directors and officers, including executive officers and secretaries of controlled entities.

Insurance premiums relate to:

• Costs and expenses incurred by the relevant directors and officers in defending proceedings; and
• Other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage.